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Brazil exits recession with Q3 growth of 0.1%

Sat, Nov 29, 2014 - 6:36 AM

Brazil's President Dilma Rousseff speaks during the opening ceremony of the 3rd National Conference of Solidarity Economy in Brasilia Nov 27, 2014. Brazil's economy exited recession with growth of 0.1 per cent in the third quarter, the government said Friday, a tepid result that is nevertheless welcome news for struggling President Dilma Rousseff.

PHOTO: REUTERS

[BRASïLIA] Brazil's economy exited recession with growth of 0.1 per cent in the third quarter, the government said Friday, a tepid result that is nevertheless welcome news for struggling President Dilma Rousseff.

The data came a day after Ms Rousseff, who has battled to reignite growth in the world's seventh-largest economy, named a new economic team featuring market-friendly bank executive Joaquim Levy as finance minister.

The finance ministry welcomed the news, underlining that the industrial sector had posted growth of 1.7 per cent.

"The economy has begun the process of returning to growth, albeit at a still-modest pace," it said.

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However, compared with the same period last year, GDP was still down 0.2 per cent in the third quarter.

Brazil's economy contracted by 0.2 per cent in the first quarter and 0.6 per cent in the second, officially entering recession.

The malaise forced Ms Rousseff onto the defensive as she waged a hard-fought re-election battle last month.

Fending off opponents' attacks of her economic record with promises to take a new policy direction, she narrowly won a new four-year term, which starts in January.

The president is deeply unpopular with the business community and markets, not least owing to heavy government intervention in economic policy.

Her government is also mired in a huge corruption scandal at state-owned oil giant Petrobras, which has already led to the arrests of a clutch of top businessmen amid claims that dozens of politicians, chiefly Rousseff allies, received massive kickbacks on contracts.

Mr Levy's appointment as finance minister was a clear effort to woo back the confidence of the financial community.

Mr Levy, 53, a University of Chicago-trained economist, vowed on Thursday to rein in the government's books, while Tombini vowed to tackle inflation, which is stubbornly hovering above the official target ceiling of 6.5 per cent.

Analysts downplayed the significance of Friday's growth figure, saying any real change in direction would depend on the new economic team.

"This figure is practically flat. We can't say it's recovering, but we also can't say it's falling," said Leandro Martins, a consultant at Walpires Corretora in Sao Paulo.

"We have to wait and see what the new economic team is going to do going forward," he added.

Alex Agostini, chief economist at Austin Rating, said the data showed the "fragility" of the Brazilian economy.

"This 0.1 per cent is weak, and worse still if you consider that there was a contraction of 0.2 per cent compared to the same period the year before. It's a reflection of irresponsible fiscal policy," he said.

The new economic team "opens positive expectations that they are going to put the fiscal house in order," he said.

"They have the know-how. But we don't know if the government will give them the autonomy to do it."

Ms Rousseff, 66, has struggled to rekindle the economic magic of her predecessor and mentor, Luiz Inacio Lula da Silva, who presided over strong growth during his eight-year administration - peaking at 7.5 per cent in 2010, the year Ms Rousseff was elected.

Under Ms Rousseff, Brazil has posted growth of 2.7 per cent in 2011, 1.0 per cent in 2012 and 2.5 percent last year.

This year, the central bank is forecasting growth of just 0.7 per cent, it said in September, slashing its previous forecast of 1.6 percent.

The International Monetary Fund also cut its 2014 growth forecast for Brazil, from 1.3 per cent to 0.3 per cent.

Amid this bad news, ratings agency Moody's revised its outlook for Brazil from stable to negative, indicating the country was at risk of losing its investment-grade credit rating.

Markets took little comfort in Friday's growth figures, with Sao Paulo's stock market chalking up its second day of losses to close down 0.10 per cent.